Working Paper No 2008/15

JUNE 2008

Corruption and the WTO Legal System

Krista Nadakavukaren Schefer*

ABSTRACT The World Trade Organization has no substantive rules directly addressing corruption in trade relations. There are, however, numerous legal provisions in the various WTO texts that offer indirect support to traders facing corrupt trade administrators. Whether these provisions are sufficient to address the bulk of trade-related corruption is questionable, given the narrow range of corrupt practices that are affected by these, mainly procedural, obligations. This article sets out a framework for further research into the question of how corruption affects trade liberalization, and puts forth a suggestion for how the WTO could take a step towards remedying its avoidance of the topic of corruption while not exceeding its functional scope of regulating trade relations among Members.

*Lecturer and Senior Research Fellow, World Trade Institute, Bern, Switzerland. Georgetown University Law Center (JD); University of Bern (Dr. iur; PD). This paper was written in the author’s capacity as a consultant to the Trade and Human Rights project of the NCCR – Trade research program, funded by the Swiss National Research Foundation. I would like to thank Susan Brown, Robert Kaplan, and Lucy Koechlin particularly for their comments on this text. All mistakes remain my own.

NCCR TRADE WORKING PAPERS are preliminary documents posted on the NCCR Trade Regulation website (<www.nccr-trade.org>) and widely circulated to stimulate discussion and critical comment. These papers have not been formally edited. Citations should refer to a “NCCR Trade Working Paper”, with appropriate reference made to the author(s). 

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Corruption and the WTO Legal System Krista Nadakavukaren Schefer*

Abstract: The World Trade Organization has no substantive rules directly addressing corruption in trade relations. There are, however, numerous legal provisions in the various WTO texts that offer indirect support to traders facing corrupt trade administrators. Whether these provisions are sufficient to address the bulk of trade-related corruption is questionable, given the narrow range of corrupt practices that are affected by these, mainly procedural, obligations. This article sets out a framework for further research into the question of how corruption affects trade liberalization, and puts forth a suggestion for how the WTO could take a step towards remedying its avoidance of the topic of corruption while not exceeding its functional scope of regulating trade relations among Members.

I. Introduction Imagine the following: you are a producer that is unable to get your goods onto the market of another WTO Member because the bribes demanded by the border patrol to make an accurate assessment of the tariffs you owe are competitively prohibitive. Could your government challenge such corruption at the border as a violation of WTO law? (Ignore the fact that the request for espousal probably would be denied.) The question has never come before the Dispute Settlement Body, and the answer is open. My assessment of the legal provisions of the various WTO agreements that might help in combating corruption suggests, however, that there are ways to challenge the procedural failings that indirectly allow for petty corruption even though a cause of action for a substantive claim is lacking. Answering why the answer is open is another matter, it can help us form some opinions on the extent to which the fight against corruption can effectively take place in the institutional framework of the WTO. The normative question: should corruption control be a part of the WTO legal framework, follows naturally.

This paper will first set out a brief statement of the WTO’s systemic functions, in order to understand the Organization’s avoidance of direct regulation of corruption within * Lecturer and Senior Research Fellow, World Trade Institute, Bern, Switzerland. Georgetown University Law Center (JD); University of Bern (Dr. iur; PD). This paper was written in the author’s capacity as a consultant to the Trade and Human Rights project of the NCCR – Trade research program, funded by the Swiss National Research Foundation. I would like to thank Susan Brown, Robert Kaplan, and Lucy Koechlin particularly for their comments on this text. All mistakes remain my own.

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Member governments. Next, there is a working definition of corruption and a very brief overview of the various forms of corruption. Parts IV and V then look to the texts of the current WTO Agreements to describe where there are already corruption-reducing provisions, whether direct or indirect. Part VI judges the sufficiency of the provisions to address the problem of corruption in trade relations, and Part VII sets forth a framework in which to approach the normative question of whether the WTO ought to more directly attack corruption through its legal provisions, and suggests that a political statement on corruption could be made by the Members. Part VIII concludes.

II. Corruption as a Non-Issue in the WTO

The World Trade Organization as a System

The World Trade Organization (WTO) is an international organization aiming at the progressive liberalization of trade among its 152 Members. The Preamble of the Marrakesh Agreement Establishing the World Trade Organization (“Marrakesh Agreement”) sets forth that the Members are “Resolved, … to develop an integrated, more viable and durable multilateral trading system” and “Determined to preserve the basic principles and to further the objectives underlying this multilateral trading system”, because they believe that economic (and environmental) well-being is furthered by the methods of trade liberalization incorporated in the WTO system agreements. Tariff reduction, the elimination of quantitative restrictions and other non-tariff barriers to trade, and the non-discriminatory treatment of traded goods and services therefore form the primary objectives of the various WTO agreements, with the loftier goals of sustainable development and full employment hovering over these operational goals

Standing apart from its peer-organizations such as the International Monetary Fund (IMF) or the International Bank for Reconstruction and Development (World Bank), the WTO allows for its combined Membership to “lead” the Organization’s policy-making – a task accomplished through decision-making based on a principle of consensus1 and backed up by an equal sharing of voting-power2. The Secretariat’s advice and research assistance are doubtlessly influential in encouraging the direction of the Organization’s

1 Marrakesh Agreement Establishing the World Trade Organization, Art. IX.1, footnote 1 defines consensus to mean that “no Member, present at the meeting when the decision is taken, formally objects to the proposed decision”. 2 Marrakesh Agreement, Art. IX.1.

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program development, but the responsibility for the progressive liberalization and integration of world trade rests with the participating governments.3

Given the “Member-driven” nature of the Organization’s policy-making, it is perhaps surprising that the WTO’s working agenda is so narrowly focused on trade liberalization itself: that is, on reducing barriers to trade in goods and services through the lowering of tariffs, the elimination of import and export restrictions, and the strict limitation on governments’ granting of subsidies to domestic industries. Although the great majority of the Members are developing or least-developed countries, the Organization is not first and foremost one dedicated to development. Assuming that liberalization will lead to development, the focus of WTO rules remains on the former, even while the Members and institution insist on the centrality of the latter. Failures of the development-from-liberalization assumption are explained-away by references to incomplete liberalization rather than by a hypothesis of mismatch between the working tool and the higher aims of the Organization. Structural and institutional factors that could interfere with the progression – including corruption and weak political institutions - may be blamed for hindering the development of a particular Member, but such factors are not considered a part of the WTO’s mandate to remedy.

Why the Silence on Corruption?

Why is there an avoidance of addressing corruption in the WTO?4 In the first place, the WTO is not an institution inclined to impose a particular moral viewpoint on its Members (at least not beyond the quasi-“moral” commitment to increasing trading opportunities5)

3 The World Trade Organization’s characterization as “Member-driven” refers to the fact that legislative, executive, and judicial competences rest with the combined membership and not with an external body. See generally the provisions on decisionmaking and amending treaty text in the Marrakesh Agreement, as well as those on adopting judicial reports and accepting requests to impose sanctions on violators of the agreements in the Understanding on the Procedures Governing the Settlement of Disputes. 4 It should be noted here that the WTO’s avoidance of the topic is not unlike the general avoidance of the issue of corruption in other international economic law instruments. Bilateral investment treaties, for instance, usually have no corruption-combatting provisions either, even though they lead to more opportunities for bribery and/or illicit payments by virtue of increasing the number of transactions. See UNCTAD, Illicit Payments, UNCTAD/ITE/IIT/25 at 5, 7 (New York/Geneva: United Nations, 2001). See also id. at 8 (table based on OECD data illustrating the types of corruption associated with numerous public sector activities). 5 Susan Rose-Ackerman talks of economists’ reluctance to express values of “right and wrong” as a reason for the early disregard of corruption as a topic of economic research,

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– and both the fight against corruption and the demands of human rights are considered “moral” issues to several of the Members.6 Thus, there is no WTO requirement of having a market system domestically, no minimum standards of Members’ democratic responsibility toward citizens, no general scrutinizing of Members’ adherence to international obligations outside of the WTO beyond periodic policy reviews. What there is are obligations to offer trading partners a foreseeable, non-discriminatory opportunities to send their goods and services to consumers in the domestic market. The economic theories of trade promise increased welfare from liberalized trade – Members just have to act on their own self-interest to profit. Thus, to the extent corruption might limit liberalization, the guilty Member is hurting itself. Irrational acts seemingly have no place in the functioning of the WTO.

Similarly, Members tend to resist the restriction of domestic regulatory space, particularly when such restrictions necessitate state action to achieve their goals. Corruption control is traditionally a task for national authorities. WTO-driven action on the issue would require that Members implement and enforce rules that prohibit corrupt behavior – rules that are complex and demanding from a technical, administrative, and judicial outlook. As such, it is unsurprising that governments would reject their imposition as sovereignty-limiting and burdensome.

Another likely factor in the rejection of anti-corruption rules by the WTO Membership is the mistaken (but widespread) view that the campaign to eliminate corruption is a “North-South” issue. That is, that it is a program imposed by industrialized states’ governments onto developing states’ governments. The resistance of developing state governments to such a presumed motive is understandable, as many of the recommended legal antidotes to corruption mirror what already exists in the legislation of industrialized states. Within the WTO’s already sensitized context of negotiating over national economic advantages and disadvantages, the addition of what could be perceived as another instrument of economic dominance is a difficult task, even without the above-mentioned factors to solidify such resistance.7

but notes that there is a “typical economists’ commitment – one might almost say a moral commitment – to using the price system”. Susan Rose-Ackerman, Introduction and Overview in: ibid., International Handbook on the Economics of Corruption xiv-xxxviii, xiv (Cheltenham, UK/Northampton, MA: Edward Elgar, 2006). 6 India and Singapore’s trade representatives speak about corruption as a “moral issue”, and one that therefore should not be taken up directly by the WTO. --- 7 See also Kenneth W. Abbott, Rule-Making in the WTO: Lessons from the Case of Bribery and Corruption, 4:2 J. Int’l Econ. L. 275 (2001).

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Finally, one can hypothesize, due to the Member-led nature of the Organization, that the topic of corruption is a politically distasteful one for many of the WTO’s ultimate legislators. Comparing the current Membership list with Transparency International’s corruption index reveals a substantial overlap at both ends: Finland, Iceland, and New Zealand (tied for first place) are all WTO Members, but so are Guinea, Myanmar (tied for the second-to-last position) and Haiti (finishing the list as the state perceived to suffer from the most corruption).

III. Working Definition of “Corruption”

Definition of “Corruption”

There is an enormous literature on the definition of corruption.8 The significance of the definition cannot be overestimated, for the definition determines which behaviors fall within the scope of the term and thus influences not only the legality of a particular behavior, but also the measurement of the extent of corruption. To a certain extent, the definition also colors perceptions of the need to combat corruption – reflecting, as it does, cultural or even ethical differences.

For this study, the definition provided by the Overseas Development Institute is good: “corruption is … the ‘abuse of public office for private gain’, or for the gain of particular groups (for examply, a political party or an informal patronage network)”.9 While corruption may also occur between private actors, the characteristic of public corruption reflects the governmental status of trade regulation affected by the WTO rules.

Types of Corruption

Even within a particular definition of what corruption is, there are numerous variations on the forms it can take.10 While bribery, or the direct offering/accepting of something of value in exchange for an illicit advantage is perhaps the most widely-recognized form of 8 See, e.g., Arthur Shacklock, Charles Sampford, Carmel Connors, and Fredrik Galtung, eds., Measuring Corruption (Aldershot: Ashgate, 2006) (a collection of articles on various aspects of the definitional and measurement problems in corruption research); Oskar Kurer, Corruption: An Alternative Approach to Its Definition and Measurement 53 Political Stud. 222 (2005). 9 Verena Fritz, Corruption and Anti-Corruption Efforts: Research, policy highlights and ways forward, ODI Background Note 1 (November 2006). 10 See, e.g., Fritz, supra n. 8 at 2-3 (setting out “corruption typologies”); Glenn T. Ware and Gregory P. Noone, The Anatomy of Transnational Corruption, 14:2 Int’l Affairs Rev. 29 (2005) (discussing six basic categories of corrupt behavior).

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corruption that could relate to trade, other forms include embezzlement (the stealing of money or goods from the state by an official) and even nepotism (promoting a less qualified individual based on his or her relationship to/with the person in authority).

Each of these types of corruption may occur on different levels of government.11 Whereas “bureaucratic corruption”, or the corruption of lower officials and state employees is often referred to as “petty” corruption, corruption of high officials, the political elite, and policy-makers is “grand corruption”. Extreme forms of grand corruption may be labeled “state capture” or “predatory corruption”, indicating the capitulation of policy-makers to their individual interests at the cost of their role as public servants.

Corruption researchers also distinguish between demand-side corruption and supply-side corruption. While the former covers an official’s request for something of value in exchange for a favorable action, the latter is an offer of a payment by the non-official who desires some advantageous treatment.

IV. Corruption-Fighting Instruments in the WTO Legal Texts There are no provisions of the WTO treaties that explicitly condemn corruption in trade as a substantive matter.12 Thus, there can be no direct violation claim on the basis of “corruption” or “bribery”.

Yet, because corruption is recognized by commercial actors within Members’ territories as harming business opportunities, there are some legal provisions among the WTO agreements that are either intended as instruments to control corruption or that at least could be used to reduce corruption despite the refusal to deeply engage in fighting corruption explicitly. These rules work to promote freer trade, making them compatible – and in some cases, integral – to the liberalization process.

The clearest examples of corruption-fighting tools available to the WTO Members at present are the three treaties regulating the procedures governing certain stages or types of trade: the Agreement on Import Licensing Procedures, the Agreement on Pre- 11 See Susan Rose-Ackermann, Introduction and Overview in: ibid., ed., International Handbook on the Economics of Corruption xiv-xxxviii, xviii-xix (Cheltenham, UK/Northampton, MA: Edward Elgar, 2006); John Joseph Wallis, The Concept of Systematic Corruption in American History” in: Edward L. Glaeser and Claudia Goldin, eds., Corruption and Reform: Lessons from America’s Economic History 23-62 (Chicago/London: Univ. Chicago Press, 2006) (discussing “venal” and “systemic” forms of corruption). 12 There is current work on a revision of the Agreement on Government Procurement that would change this. See infra --.

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Shipment Inspection, and the Agreement on Government Procurement. All of these agreements aim to make administrative decisionmaking more predictable and accountable – a procedural solution to the problem of corruption. Under the rubric of “transparency” each of the agreements provide for Members to ensure that their responsible officials act on publicly-available criteria when taking decisions and then be able to offer written explanations for their final choices.

The implicit idea governing such procedures is that officials will not be able to hide behind secretive processes and grant government contracts or licenses on the basis of non-economic considerations – whether protectionist or corrupt. The fact that the decisions can be challenged by losing bidders is meant to solidify the requirements – ensuring that post-hoc review can remedy any failures in the deterrent-effect of such rules. A closer review of these agreements demonstrates the strengths and weaknesses of each as a tool against corruption.

GPA

When a government purchases goods or services from private enterprises for use in the public sector, the term used to describe such activities is “government procurement”. While procurement activities absorb a substantial share of government revenues in all countries (Transparency International estimates that an average of 15-30 percent of GDP is spent on government procurement13), in developing countries, the percentage of gross national product spent on governmental purchases is higher than in industrialized countries, an estimated average of 25 percent.14

13 Transparency International, Handbook: Curbing Corruption in Public Procurement 13 (Berlin: Transparency International, 2006). 14 Glenn T. Ware, Shaun Moss, J. Edgardo Campos, and Gregory P. Noone, Corruption in Public Procurement: A Perennial Challenge in: J. Edgardo Campos and Sanjy Pradhan, eds., The Many Faces of Corruption: Tracking Vulnerabilities at the Sectoral Level 295-334, 295 (Washington, DC: World Bank, 2007) (the authors also note that Transparency International estimates a loss of $400 billion per year to procurement corruption); see also Transparency International: Curbing Corruption at 13 (stating that some countries spend over 30 percent of their GDP on procurement of public goods and services).

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Throughout history, procurement processes have been the target of corrupt practices.15 In part, this is due to the very large sums that change hands. Given the potential gains from even minimal “skimming”, the temptation for an official to take a percentage of the transaction costs for herself is correspondingly high: “The potential reward for a single contract directed to the right winner can exceed the legitimate lifetime salary earnings of a decision-maker. The temptations are enormous and, … the risks of punishment are relatively small”.16

Moreover, as corruption is known to thrive where official perogative combines with opaqueness and unaccountability, the susceptibility of procurement to corruption is not surprising. Several characteristics of government procurement provide fertile soil for all three of these elements. First, government procurements are frequently a process of multiple-step decision-making, with substantial room for discretion on the part of the decision-maker at each of the steps: determining if there will be a call for tenders or whether potential suppliers will be invited to submit a bid for a project; formulating the specifications for the offers; collecting the bids; making a final determination on the winning bid; and overseeing the completion of the project.17 Second, the decisionmaking process is often largely intransparent, with the government itself determining what type and how much information about the process and resulting decision will be publicized.18 Finally, there is minimal accountability for most procurement decisions. Even where 15 See, e.g., Mohammad Mobabbat Khan, Political and Administrative Corruption: Concepts, Comparative Experiences and Bangladesh Case (text available at http://www.ti-bangladesh.org/index.php?page_id=373) (noting that ancient civilizations around the world had criminal sanctions for corruption, and, focusing on India, pointed out that administrative corruption was among the worst); Edward L. Glaeser and Claudia Goldin, eds., Corruption and Reform: Lessons from America’s Economic History (Chicago: Univ. Chicago Press, 2006) (containing essays of different areas of governmental corruption throughout U.S. history). 16 Donald Strombom, Corruption in Procurement, 3:5 Economic Perspectives (1998) (text available at http://usinfo.state.gov/journals/ites/1198/ijee/strombom.htm) (speech by former World Bank chief of procurement). 17 See Ware et al. at 308-317 (listing possible points of corruption at each stage of a procurement). 18 See Miriam Golden and Lucio Picci, Corruption and the management of public works in Italy in: Susan Rose-Ackermann, International Handbook on the Economics of Corruption 457-483, 458 (Cheltenham, UK/Northampton, MA: Edward Elgar, 2006) (analyzing procurement under the perspective of officials taking “advantage of their control over the monopolistic provision of infrastructure goods to engage in rent-seeking”).

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regulations exist for procurement procedures, there is, for instance, often little motivation to prosecute officials for not strictly following such rules. And, even if prosecution is attempted, absent explicit evidence of bribery, it is very difficult to prove that the official’s decision itself led to a diminished quality of supplied goods or services.

In response to the susceptibility of the government procurement process to corruption, several initiatives to reduce the corruption of this sector have been started in different fora, non-governmental as well as national, regional, and multilateral.19

The Agreement on Government Procurement (“GPA”) is the most immediately recognizable instrument to counter corruption among WTO Member governments. A plurilateral treaty, the GPA applies only to those Members that have accepted its provisions (as of June 2008, 40, including the 27 Member States of the EC20), and only to the extent each has set out in its annexed tables. The broad non-acceptance of the GPA actually speaks for its significance, even while minimizing its actual effects at the present.

The Preamble of the GPA sets out the three main goals of the Parties regarding procurement. First, and very importantly, the GPA looks to open the market for government purchases to suppliers from all Party territories. “Market Access” is,

19 Transparency International publishes a Handbook containing “Things to Do” boxes to guide procurement officials toward developing corruption-reducing regulations. See Transparency International, Curbing Corruption, supra, n. --. Besides NGO interest, regional development banks have also issued procurement regulations to minimize corruption by procurement actors. See, e.g., European Bank for Reconstruction and Development, Procurement Policies and Rules (first published in 1992, the most recent is from August 2000); ---. The OECD has a number of publications on the problem of corruption in procurement. See, e.g., OECD, Bribery in Public Procurement: Methods, Actors and Counter-Measures (Paris: OECD, 2007); OECD, Fighting Corruption and Promoting Integrity in Public Procurement (Paris: OECD, 2005); OECD, Integrity in Public Procurement – Good Practice from A to Z (Paris: OECD, 2007). The World Bank, too, has devoted research to government purchases. See, e.g., World Bank, Guidelines: Procurement of Goods and Services by World Bank Borrowers (Washington, DC: IBRD/World Bank, 2004); World Bank, Guidelines: Selection and Employment of Consultants by World Bank Borrowers (Washington, DC: IBRD/World Bank, 2004). 20 The Parties to the GPA as of 1 June 2008 are: Canada, the EC Member States, Hong Kong, Iceland, Israel, Japan, Korea, Liechtenstein, Aruba, Norway, Singapore, Switzerland, and the United States. The lists of members and observers are available at http://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm.

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according to many, the prime aim of the GPA – and, indeed, it is generally cited as the reason that most developing countries refuse to join.21

A second, related, goal of the GPA is non-discrimination in the procurement process. The Parties “recognize” that government procurement laws should not (and should not aim to) discriminate in favor of national suppliers or to the advantage of one country’s suppliers over another’s. This “national treatment” obligation and its multilateral corollary, the most-favored nation obligation, are set out as binding rules in Article III GPA, but find reflection throughout the Agreement.22

The third goal of the Government Procurement Agreement is to enhance the “transparency of laws, regulations, procedures and practices regarding government procurement” and to provide for “fair” procedures to ensure that the rules on procurement are effective. (Preamble) It is this goal that is of most significance to the reduction of corruption. Interestingly, it was also - seemingly – the least problematic for developing countries in the early days of GPA negotiations.23

Articles XVII-XX GPA address Transparency. While in part hortatory (Article XVII begins, “Each Party shall encourage …”), and essentially only emphasizing publication of regulations and decisions surrounding the procurement process, the provisions of the transparency articles of the GPA do allow for some degree of external oversight of officials’ actions. Not only must a covered governmental entity give a reasoned opinion as to why the winning bid was chosen and the relative failings of the inquiring bidder (XVIII.2), but if the reasoning is unconvincing, a losing supplier may bring a legal challenge against the tender decision with the possibility of suspending procurement procedures and/or gaining compensation. While such measures could only reduce the desirability of corruption if the non-discrimination (particularly the national treatment) obligations are also fulfilled, they are an important part of the overall direction of the GPA to limit corruption in an important economic sector: “If you can make the government procurement process transparent, you can go a long way towards solving [the corruption] problem”24.

21 See Eleanor Roberts Lewis, LPIB Roundtable on Global Corruption: Remarks, 31 L. & Pol’y Int’l Bus. 210, 212 (1999). 22 See, e.g., GPA Art. VII.1 (tendering procedures are to be applied in a “non-discriminatory manner”); GPA Art. VIII(c) (rules on qualification of suppliers are not to be applied “in order to keep suppliers of other Parties off a suppliers’ list); GPA Art. X.1 (procurement bodies are to select tenderers non-discriminatorily); GPA Art. XX.2 (challenge procedures shall be open to all suppliers on a non-discriminatory basis). 23 Lewis at 212. 24 Lewis at 212.

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There are continuing negotiating efforts in the procurement area to limit the potential for distortions of the procurement process by government officials. The WTO Ministerial Conference in Singapore established a Working Party in 1996 to further the transparency discipline of the GPA, and attempted to gain support for an initiative on Transparency in Government Procurement (TGP). This initiative would multilateralize the GPA’s existing requirements of publication, justification, and review, and by doing so, reduce the opportunities for bribery and corruption in Member territories not now Party to the plurilateral agreement.25

The idea of addressing the topic of corruption directly under the heading of “transparency”, however, appears to be doomed to failure. While numerous Members have spoken to the relationship between transparency and corruption, the consensus seems to be that while the former can lessen the latter, they are not coterminous. Indeed, even Members who are eager to further the initiative concede that any conceptions about bribery and corruption are to be kept separate from obligations to increase transparency.26 The Working Group’s Report of 2003 sets forth:

“With regard to the issue of the relationship between transparency in government and the reduction of corruption, the view was expressed that corruption existed in all countries, even notwithstanding the application of transparency rules. Nevertheless, transparency rules enhanced the ability of countries to combat this problem. In response, the point was made that, while reducing corruption was a laudable objective for all national governments, it should not be a principal objective, nor should it be built into any possible agreement on transparency in government procurement. (…) [I]t was noted that the rationale underlying a future agreement on transparency in government procurement would not be to reduce corruption. Nor would a future multilateral agreement contain specific

25 See Positive Effects of Transparency in Government Procurement and Its Implementation, WT/WGTGP/W/41, paras. 6-7 (17 June 2003) (EC communication on the Agreement on Transparency, noting the corruption reducing effects explicitly as a reason for pursuing the Agreement). 26 See, WTO Secretariat, Report on the Meeting of 10-11 October 2002, WT/WGTGP/M/15 at 9, para. 61 (EC and US delegations in the WTO negotiations on a transparency agreement for government procurement stated that “bribery and corruption did not need to be dealt with in a transparency agreement”); WT/WGTGP/M/18 para. 38 (Switzerland’s delegation did not see fighting corruption as a “rationale” for an agreement on transparency, even though it would be a positive side-effect).

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provisions on corruption. Rather, the reduction of corruption would be a side-effect of the agreement.”27

The failed Cancun Ministerial meeting, however, led to blockages on the Agreement’s pursuance, and the entire TGP work was declared a non-topic for the remaining Doha negotiations at the beginning of August 2004.28 Work within the Working Group has therefore stopped for the foreseeable future. 29

At the same time, there is another draft of government procurement rules that explicitly addresses corruption. The GPA Revision document of December 2006 (“the Revision”)30, upon which Members of the GPA have “reached provisional agreement”31, acknowledges the problem of corruption in procurement activities and addresses it directly. In its Preamble, the Revision connects the principle of transparency with corruption-reduction: “Recognizing the importance of transparent measures regarding government procurement, of carrying out procurements in a transparent and impartial manner, and of avoiding conflicts of interest and corrupt practices, in accordance with

27 Report of the Working Group on Transparency in Government Procurement to the General Council, WT/WGTGP/7, para. 14 (15 July 2003) (footnotes, all of which referred to document WT/WGTGP/M/18, omitted) 28 “July Decision” of the General Council, WT/L/579, para. 1(g) (2 August 2004) (“Relationship between Trade and Investment, Interaction between Trade and Competition Policy and Transparency in Government Procurement: the Council agrees that these issues, mentioned in the Doha Ministerial Declaration in paragraphs 20-22, 23-25 and 26 respectively, will not form part of the Work Programme set out in that Declaration and therefore no work towards negotiations on any of these issues will take place within the WTO during the Doha Round”). 29 See also Philip Nichols, Corruption in the World Trade Organization: Discerning the Limits of the World Trade Organization’s Authority, Research Paper published in Knowledge@Wharton, 1 January 1998. (also NYU J. Int’l L. & Pol. 711 (1996)).

Peter Eigen, Controlling Corruption: A Key to Development-Oriented Trade in: Mike Moore, ed., Doha and Beyond: The Future of the Multilateral Trading System 125-145 (Cambridge: Cambridge Univ. Press, 2004).

Kenneth W. Abbott, Rule-Making in the WTO: Lessons from the Case of Bribery and Corruption, J. Int’l Econ. L. 275 (2001). 30 GPA/W/297. 31 WTO, The Plurilateral Agreement on Government Procurement, Negotiations (http://www.wto.org/english/tratop_e/gproc_e/gp_gpa_e.htm).

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international instruments, such as the United Nations Convention Against Corruption”.32 While the existing GPA also encourages transparency, the Revision’s clear statement on the relationship between transparency and the effort to reduce corruption is novel and significant, as is the invocation of the multilateral convention addressing corruption.

It is the condemnation of corruption in the body of the Revision, however, that is most noteworthy. Found in Article V, the obligation to prevent corruption in the actual procurment process is placed together with non-discrimination as a “general principle” of the agreement.33 The Members, moreover, are not just to avoid corruption, they are to “prevent” it – a positive obligation that, given the widely-acknowledged extent of corruption affecting procurement decisions today, promises to pose a real challenge if implemented.

The Revision contains further procedural obligations that could indirectly lessen the opportunities for corruption: publication rules34; required explanations of rules and decisions or changes in practices35; detailed standards for the content of procurement notices36; rules to require minimum types of information in tender documents37; minimum time limits for submissions38 and maximum time limits on administrative decisionmaking39; and procedures for a review of challenges by losing bidders40. The overall effect of the Revision, therefore, is one of an acknowledgement of the problem of corruption in procurement, and a willingness to address it directly and effectively.

32 GPA/W/297, Preamble. 33 GPA/W/297, Article V (paragraph 1 obliges Members to afford national treatment to foreign suppliers, while paragraph 4 requires Members to conduct procurement proceedings in a “manner that … (c) prevents corrupt practices”). 34 GPA/W/297, Art. VI.1(a) (requiring publication of all laws, regulations, rulings, and procedures relating to the entire procurement process, and the publication of changes to such measures). 35 Art. VI.1(b). 36 Art. VII.2. 37 Art. X.7. 38 Art. XI. 39 Art. XVI.2 (generally, publication of contract awards within 72 days after the decision). 40 Art. XVIII.

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Agreement on Import Licensing Procedures

Another existing Agreement that aims indirectly at reducing corruption in the form of bribery of officials is the Agreement on Import Licensing Procedures (ILA). This multilateral agreement explicitly aims to increase transparency in the adminstration of import licensing41, but it goes further by establishing standards for administrative behavior and decisionmaking.

The import licensing procedures covered by the ILA are Members’ administrative procedures “used for the operation of import licensing régimes requiring the submission of an application or other documentation (other than that required for customs purposes) to the relevant administrative body as a prior condition for importation”.42 Such licensing regimes can have the effect of fostering corruption by limiting the supply of a valuable right – and giving the distribution of such rights into the discretion of government officials. As one report notes, “Licenses in limited supply encourage economic actors to make efforts to insure they receive them”.43 Corruption is the term given to those efforts when they are illegal. While non-automatic licensing procedures are the most obvious source of corruption-induced misbehavior, the ILA provisions apply to both automatic and non-automatic licensing procedures.44

41 See Agreement on Import Licensing Procedures, Preamble (“Desiring to simplify, and bring transparency to, the administrative procedures and practices used in international trade, and to ensure the fair and equitable application and administration of such procedures and practices”). 42 See also ILA, Art. 1.1, footnote 1 (definition includes not only the issuance of a license, but also “similar” procedures). 43 OECD Working Party of the Trade Committee, Analysis of Non-Tariff Measures: The Case of Non-Automatic Import Licensing, TD/TC/WP(2002)39/FINAL, 9, para. 21 (discussing the phenonmenon of “rent-seeking”). A less restrained author, writing about Nigeria, called import licensing “the biggest corruption mechanism that has ever been created”. Salihu Yarima, Why Obasanjo will Never Leave Aso Rock Voluntarily, May 2003 (text available at http://www.nigerdeltacongress.com/warticles/why_obasanjo_will_never_leave_as.htm; visited 4 June 2008). 44 Automatic licensing indicates that an import license is given to any trader upon fulfillment of minimal requirements, without delay. See ILA Art. 2; ILA Art. 2.1 states that it is “import licensing where approval of the application is granted in all cases”. Non-automatic licensing is when the import license is granted either only to particular importers or only at particular times, or when the granting of the license is otherwise within the discretion of the licensing authority. See ILA Art. 3; ILA Art. 3.1 defines non-

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Among its provisions, the ILA calls for Members to publicize their regulations45 and to notify the WTO of proposals to adjust the rules46. The rules are quite explicit about just how transparent the licensing procedures are to be: not only is “sufficient information” required, but this is defined as information that will allow private traders to “know the basis for granting and/or allocating licenses”47; the information is also to include whether “exceptions or derogations” are permitted to any of the rules, and if so, how to go about requesting such alterations of the rules48. If a trader, therefore, suspects that a competitor received a license due to an official’s corruption, in situations where no derogations from the rules have been published, there may be room for a claim that the transparency provisions have been violated.

Like the GPA, the ILA emphasizes transparency through standards of behavior and a review process, all of which are subject to the WTO’s dispute settlement mechanism.49 The licensing procedures, for instance, are to be prompt – within ten days for an automatic license50, and in 30 days of receipt of the application for non-automatic licenses51. Similarly, a trader whose application for a non-automatic import license is denied “shall, on request, be given the reason therefore and shall have a right of appeal or review”.52

Together, such standards establish a backdrop against which traders can enter a market knowing the legal framework. The knowledge itself should help provide a bulwark against requests for extra payments. The anti-corruption effects are, admittedly, passive

automatic import licensing procedures as “import licensing not falling within the definition contained in paragraph 1 of Article 2”. 45 ILA, Art. 1.4(a). 46 ILA, Art. 5 (calling for a notification of changes in procedures within 60 days of publishing the information). 47 ILA Art. 3.3. 48 ILA Art. 3.4. 49 ILA, Art. 6. 50 ILA Art. 2.2(a)(iii). 51 ILA Art. 3.5(f). There is a a 60-day-after-closing-date limit for applications considered simultaneously. Id. 52 ILA Art. 3.5(e).

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rather than active in this respect, but the focus of the ILA on applied procedures (rather than on the law as written) should augment such effects.53

Agreement on Pre-Shipment Inspection (PSI)

Pre-shipment inspection procedures are used by governments to ensure the “quality, quantity, or price of imported goods”, mainly for taxation purposes.54 The actual inspection is often performed in the country of export by a private company that stands in a contractual relationship with the government.55 As of the mid-1980s, pre-shipment inspections began being used to control for understatements of the value of shipments, and so to eliminate tariff evasion.56 Although instigated to help control tariff fraud, pre-shipment inspection procedures can also be used in a way that fosters petty bribery. Because inspection officials have significant authority over the duration of the procedure as well as over the results, illicit payments can be demanded or offered to speed-up the inspection or to alter the inspector’s decision regarding the quality/quantity estimates or the classification of the shipment.

The Agreement on Pre-Shipment Inspection (PSI) was introduced into the WTO texts during the Uruguay Round, and has, since 1995, applied to WTO Members’ “activities relating to the verification of the quality, the quantity, the price, … and/or the customs classification of goods to be exported to [its] territory”.57 At its core, the PSI agreement is aimed at reducing illegal activity.

By reducing the discretion of individual officers in several respects, the PSI stands as the third main WTO agreement to reduce the potential for corruption in trade relations. The first notable obligation on PSI governments is transparency, applicable to both importing Members and exporting Members. As is the case with government procurement rules and import licensing rules, governments must publish their relevant laws and regulations.58 53 The extent to which the ILA has actually achieved a reduction in corruption is questionable, as not all WTO Members have implemented the Agreement fully. See -- 54 PSI, Preamble. 55 José Anson, Olivier Cadot, and Marcelo Olarreaga, Tariff Evasion and Customs Corruption: Does Pre-Shipment Inspection Help? World Bank Policy Research Working Paper No. 3156, p. 1 (October 2003) (text available at http://ssrn.com/abstract=636575). Anson et al. note that there are only five major pre-inspection companies. Id. at ftnt. 1. 56 Id. at 1. 57 PSI, Art. 1.3. 58 PSI, Art. 2.8 (user Member requirement); PSI, Art. 3.2 (exporter Member requirement).

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The PSI specifically sets out that until legislation on inspections is published “officially”, the laws are not applicable to WTO Member traders.59 For the importing Member (“user Member”), the transparency provisions can force a Member’s pre-shipment inspection body to inform potential exporters of laws and regulations relating to the inspection, and those provisions specify that “[a]dditional procedural requirements or changes in existing procedures shall not be applied to a shipment unless the exporter concerned is informed of these changes at the time the inspection date is arranged”.60 Article 5 (Notification) provides for the Member’s submission of information on the relevant legal framework to the WTO.61

Complementing the transparency and notification requirements are the obligations to harmonize pre-shipment inspection standards. Most specifically, the Agreement, without preempting specific buyer-seller agreements, fosters harmonization by specifying that unless otherwise arranged between the parties, the “quality and quantity inspections” are to be performed according to “international standards”.62

There are further harmonization-oriented provisions. Paragraph 20 of Article 2 sets forth rules on “price verification” for purposes of assessing the export price of a set of goods. The provisions of that paragraph, consisting of general “guidelines” relating to how prices can be compared and what are acceptable factors to be taken into account in addition to the comparisons, harmonize the approach taken to verification among WTO Members, even if not clearly binding the Members to a particular single standard.63 The relation to corruption is explicit in these price verification rules: Members “shall ensure that” their price inspectors use these guidelines “in order to prevent over- and under-invoicing and fraud”.64 Fraudulent pricing behavior, as a form of corruption, can distort trading relations by allowing for the official to reap the benefits of the under- or over-payment of tariffs, licensing fees, or taxes to which the shipment is subject. By

59 PSI, Art. 5. 60 PSI, Art. 2.6. 61 PSI, Art. 5. 62 PSI, Art. 2.4 (footnote 2 defines an “international standard” as one “adopted by a governmental or non-governmental body whose membership is open to all Members, one of whose recognized activities is in the field of standardization”). 63 See particularly Agreement on Pre-shipment Inspection, Art. 2, para. 20(b)-(c) (setting out bases of comparison and “generally applicable adjusting factors pertaining to the transaction”). 64 Agreement on Pre-Shipment Inspection, Art. 2, para. 20.

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harmonizing the pricing policies of WTO governments, such fraud can be reduced at the level of policy implementation.

Implicit harmonization is found in other provisions. It extends from the minimum information all user Members must provide to exporters65, to the prohibition of requests for certain information66, and to the setting forth of guidelines to be used in price verification procedures.67

Another corruption-reducing potential of the PSI rests in its establishment of a right of independent review of inspection results.68 The Article 4 procedure foresees a three-person panel hearing the complaint and taking a majority decision on whether the inspector or the exporter has complied with the PSI obligations. The Agreement’s ensures exporters (and importers) of an opportunity to challenge procedures before an international panel that has the authority to issue binding decisions on whether the rules of the PSI have been violated.69 Should corruption therefore, be suspected as having been a factor in the pre-shipment inspection decision, the matter can be challenged on the basis of the PSI for clarification. While “corruption” as a general claim is hardly to be expected, distortions of the rule-application could be challenged, should the complainant want to do so. Binding the parties involved, such a decision could effectively dampen the likelihood of corruption at the inspection site, as competing exporters would have an interest in preventing undervalue assessments of their competitors. The few countries that have actually set up such reviewer bodies suggests, however, that the theoretical corruption-reducing benefits have little chance to come to fruition soon.70

Like the GPA and the ILA, the PSI is an instrument with a potential of directly reducing the possibilities of corruption in the trading process. Whether it is used to its full remains to be seen.71

65 PSI, Art. 2.6 (“information shall include a reference to the laws and regulations … and shall also include the procedures and criteria used for inspection and for price and currency exchange-rate verification purposes, the exporters’ rights …, and the appeals procedures”). 66 PSI, Art. 2.12 (list of types of business information deemed “confidential”). 67 PSI, Art. 2.20. 68 PSI, Art. 4. 69 PSI, Art. 4. 70 Anson, Marcelo, and Cadot, infra at 8. 71 A World Bank research group conducted a study on the impact of pre-shipment inspections on corruption and found ambiguous results: less customs fraud in one country studied, more in another, and no significant change in a third. See José Anson, Marcelo

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V. WTO Legal Provisions that May Reduce the Potential for Corruption Indirectly Although the GPA, ILA, and PSI are the WTO instruments that could most directly regulate the opportunities for corruption in trade, several of the legal provisions of the WTO Agreements also lower the potential for trade-related corruption. These provisions give traders rights that, if used, could assist them in resisting demands for illicit payments from officials at the border and in positions of control over the market.

The following sets forth some of the corruption-opportunity reducing tools already available to WTO Members. First are the articles regulating market access – those setting out how tariffs are to be utilized and how quantitative restrictions and other non-tariff barriers are approached. Next to be discussed are the provisions that reduce the scope for corruption through requiring transparency in the administration of trading regulations. Such transparency provides traders with the right to have information about the importing (or exporting) process that should make them less willing to succomb to requests for bribes as well as reducing the financial advantages of offering bribes. Finally, measures supporting harmonization of trading rules are introduced. These rules reduce the potential for corruption by reducing officials’ discretion in defining the regulations to begin with.

Market Access Provisions

The term “market access” as used in international trade law refers to the principle of bringing goods and services from one territory into commercial circulation in another territory. Market access is important because, quite simply, without access to foreign markets, there can be no international trade. While market access barriers may be physical (such as geographic distance, oceans, mountains, or deserts) or psychological (such as an inability of the producer to communicate with the potential customer), such barriers have been effectively overcome by technology of transportation and communication. The market access barriers that remain are mainly government-created regulations that intentionally or incidentally block trade. Thus, in the context of the WTO’s legal framework, securing binding obligations of unhindered market access from the Members is a central goal of the agreements.

The primary function of the market access principles in the WTO system is to liberalize trade for the sake of garnering the benefits of comparative advantage. The potential exists, however, for market access to reduce the opportunities of corruption by offering

Olarreaga, and Olivier Cadot, Tariff Evasion and Customs Corruption: Does Pre-Shipment Inspection Help? World Bank Policy Research Working Paper No. 3156 (text available at http://ssrn.com/abstract=636575). The Anson et al. paper, however, makes no explicit reference to the WTO’s PSI provisions, which should regulate the corruption incentives inherent to the custom officials’ treatment of pre-shipment inspection results, leaving unclear the extent to which the Agreement itself influences corruption levels.

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traders an assured level of entry to the market. Given the right to bring goods or services into a country, a producer should rationally refuse to accommodate demands for extra payments to gain the permission to do so. Several of the WTO agreements’ provisions provide for such rights.

GATT Art. II.

As an organization dedicated to lowering trade barriers, Article II of the GATT is key, requesting Members to contractually set out their highest legal tariffs for the goods they import.72 The individually-set tariff “bindings” then become international obligations, restricting the governments from imposing higher charges on foreign goods than those agreed to in the tariff lists. At present, approximately 99% of the industrial goods tariffs of industrialized countries are bound, and the average tariff rate is in the range of 5%. Developing countries, too, have largely bound their industrial tariffs (over 70% bound), applying average MFN rates in the low-to-mid teen percentages.73 Agricultural tariffs tend to be higher, as such products have historically been heavily protected, but even there, liberalization is deepening.

The main function of tariff bindings in the WTO is to provide foreseeability to exporters, allowing them a stable basis on which to calculate the costs of trading in a Member territory.74 A further effect of bindings, however, is that of transparency, and it is the combination of foreseeability and transparency that lends the potential of corruption-reduction. Given a maximum legal tariff, it is more difficult for a tariff officer to demand extra payments to allow a product into a territory than it would be if the officer had greater flexibility in determining the tariff ad hoc. As long as the importer knows the maximum rate she my legally be charged, it is unlikely that she will agree to pay amounts in excess of that rate.

To be sure, binding tariffs cannot eliminate small corruption entirely. Border officials can still alter the classification of a good to correspond to a lower tariff category, for example. The greater transparency, does, however, help to limit the financial impacts of such corruption. 72 Each Member’s tariff schedules, or lists, are to include a record of “other duties or charges” placed on imports as well as tariffs. Understanding on the Interpretation of Article II:1(b), paras. 1, 3. 73 See the information provided in WTO/ITC/UN, World Tariff Profiles 2006 (Geneva: WTO, 2007) (listing each WTO Member’s average bound tariff rate and average MFN applied rate; the bindings are often significantly higher than the applied rate). There are no WTO-generated averages of Members in development-level categories. Personal communication from Eric Ng Shing, Statistical Officer, WTO (4 June 2008). 74 Tariff bindings are also the basis for tariff reduction negotiations.

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GATT Art. XI.

Another of the most basic provisions of the GATT 1947 is Article XI, setting forth a prohibition on the use of quantitative restrictions. The prohibition on quantitative restrictions (“QRs”) is relatively clear: “No prohibitions or restrictions other than duties, taxes or other charges … shall be instituted or maintained by any contracting party on the importation of any product of the territory of any other contracting party on the importation of any product of the territory of any other contracting party …”. The same prohibition applies to exports.

Although subject to some exceptions, the provision has had a successful career since 1948, with significantly fewer QRs today than fifty years ago.75 Important to the achievement of the WTO’s goals of liberalizing trade as a tool for promoting market access for foreign producers, Article XI also reduces the opportunities of national trade officers to profit from the many opportunities of corruption inherent in the administration of quantitative restrictions. With the removal of quantitative restrictions comes a significant reduction in the opportunities to illegally sell import (or export) licenses or to allow (at a price) products into the territory without a license.

GATT Article XIII

Furthering the basic prohibition on the use of quotas, Article XIII restricts Members’ ability to differentially restrict quantities of imports based on the country of origin.76 Being fully justiciable, Article XIII thus underlines the producers’ rights to equivalent treatment with other producers, which treatment itself is to be publically known (or at least available upon request). Again, this fosters the ability of another Member to control the corruption potential of a Member fully in line with the logic of liberalized trade.

Agreement on Agriculture, Article 4

The market access provision of the Agreement on Agriculture applies the basic GATT market access provisions to those agricultural products that Members have committed to a list.77 Thus, agricultural products are to be subjected to tariffs no higher than the 75 76 GATT Art. XIII:1. Note that the rules regarding quantitative restrictions are valid for both imports and exports. Id. (“No prohibition or restriction shall be applied by any contracting party on the importation of any product of the territory of any other contracting party or on the exportation of any product destined for the territory of any other contracting party, unless the importation of the like product of all third countries or the exportation of the like product to all third countries is similarly prohibited or restricted”) (emphasis supplied). 77 Agreement on Agriculture, Art. 4.1.

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amount set out in the particular Member’s schedule, but under scrutiny are also the other market access areas such as quantitative restrictions and licensing, as well as the non-tariff barriers of state trading enterprises.78

Sanitary and Phytosanitary Agreement, Articles 2 and 4

The SPS Agreement offers Members’ producers enhanced abilities to avoid demands for illicit payments by limiting the use of health-related standards to ones that are scientifically determined to be “necessary to protect human, animal or plant life or health”.79

General Agreement on Trade in Services, Article XVI

The corollary to the tariff binding and quantitative restriction provisions of the GATT, paragraphs 1 and 2, respectively, of Article XVI of the GATS enables Members to commit to opening their markets fully or partially to foreign services and service providers. The service sectors to which the obligations apply are those set out in the official “schedule” of specific commitments for the particular Member80, and the scope as well as the depth of these commitments is the subject of negotiation for progressive liberalization81.

The rights of market access protected by the GATS schedules affords foreign service providers comparable protection against demands for payments as the parallel GATT provisions do for goods providers. Due to the lack of specificity in defining certain types of services, however, the market access provisions of the GATS leave more room for discretion on the part of officials than would a binding tariff for a product. The potential for continued corruption, is therefore, somewhat heightened in comparison to goods trade, but still reduced over the situation prior to the GATS.

Provisions on Transparency

The WTO agreement texts contain numerous provisions on transparency. Commonly requiring publication of laws and regulations as well as the availability of judicial review of administrative decisions, such transparency clauses are relevant to reducing the opportunities for engaging in corruption by virtue of giving traders important knowledge about the legal conditions for the market. While corrupt officials will continue to be able to request bribes from traders in exchange for a financially-advantageous declaration as

78 Agreement on Agriculture, Art. 4.2 and footnote 1. 79 SPS Agreement, Art. 2.2. 80 GATS Art. XX governs the management of the schedules. 81 GATS Art. XIX.

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long as any regulatory barriers to trade exist, the scope of corruption is necessarily lowered as tariffs are brought down, as quantitative restrictions are removed, and as non-tariff barriers are dismantled. The following sketches out those transparency obligations that are most likely to reduce the opportunities for corruption by officials involved in the administration of the trading system of a WTO Member.

GATT, Article X

Article X of the GATT sets forth the basic call for transparency in trade regulation. The provision’s text calls for WTO members to promptly publish all “(l)aws, regulations, judicial decisions and administrative rulings of general application” that affect their global trading system partners.

Although neither prominent as a focus of scholarly analysis nor as an often ruled-upon provision in GATT/WTO litigations82, Article X GATT has the potential for playing a significant role in the efforts to counter low-level corruption. The promise of Article X lies in its core: making domestic trading rules and practices known. Just as the more specific calls for bound tariffs and the elimination of quantitative restrictions, the encouragement of more general transparency functions to make foreign traders aware of the prevailing conditions of trade in the particular target market, and to thereby limit the extent to which they are subject to arbitrary demands to make illicit payments to officials in charge of implementing trade policies.

Agreement on Sanitary and Phytosanitary Measures, Annex B.

Article 7 SPS provides that Members are to adhere to the provisions of Annex B regarding their duties of transparency.83 Annex B itself, “Transparency of Sanitary and Phytosanitary Regulations”, aims to make the health regulations of each Member accessible to the interested producers of other Members. The 11 paragraphs of the Annex set out, for example, that Members are to make their health regulations available to other WTO Members84 and that each is to establish a central “enquiry point” for answering

82 Friedl Weiss and Silke Steiner, Transparency as an Element of Good Governance in the Practice of the EU and the WTO: Overview and Comparison, 30 Fordham Int’l L.J. 1545, 1572 (2007). See also id. at 1573-1576 (discussing case law of the GATT/WTO regarding Art. X GATT, noting that although it has frequently been invoked, the invocation has mainly been as a secondary claim and therefore rarely addressed in final reports of panels and the Appellate Body). 83 SPS Agreement, Art. 7 (“Members shall notify changes in their sanitary or phytosanitary measures and shall provide information on their sanitary and phytosanitary measures in accordance with the provisions of Annex B”). 84 SPS Agreement, Annex B, para. 1.

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questions about the regulations and procedures required for the marketing of products85. Moreover, notification obligations exist for the promulgation of measures that are not “substantially the same as” an international standard86, allowing for advance knowledge of the new rules in order to allow foreign producers an opportunity to both challenge the change and to adapt to it87.

Agreement on Sanitary and Phytosanitary Measures, Annex C.

Annex C of the SPS Agreement sets out rules for “control, inspection and approval procedures” of products subject to health regulations.88 As a check on procedural arbitrariness, Annex C is of potentially great significance in reducing the opportunities for official corruption at the border. Not only are the procedures to be “limited to what is reasonable and necessary”89, but there is specific language governing the cost of inspections: “Members shall ensure … that: … any fees imposed for the procedures on imported products … should be no higher than the actual cost of the service”90. The inspection officials’ behavior, then, is explicitly limited, and corruption – to the extent it is reported – could become a valid basis for a complaint under this Annex.

Agreement on Technical Barriers to Trade

The TBT Agreement is similar in its corruption-reducing potential to the SPS Agreement, applying to any non-health standard for goods.91 Nearly all of the provisions of the TBT Agreement could be regarded as indirectly reducing the possibilities of corruption, as the aim of the Agreement is to ensure that technical regulations and standards are prepared and applied in a way that does not aim at “creat[ing] unnecessary obstacles to trade”92. Given that corruption of officials is itself an adds costs to trading (although the motivation of the perpetrator is not trade-related), the requirements that standards be notified to WTO Members, that new proposals are opened to comments, that the charges for inspections are related to the work involved, and that subnational government

85 SPS Agreement, Annex B, para. 3. 86 SPS Agreement, Annex B, para. 5. 87 SPS Agreement, Annex B, para. 5(b). 88 SPS Agreement, Annex C. The Annex applies to “procedures for sampling, testing and certification”, and similar measures. Id. at ftnt. 7. 89 SPS Agreement, Annex C, 1(e). 90 SPS Agreement, Annex C, 1(f). 91 See TBT Agreement, Art. 1.5 (TBT provisions do not apply to SPS measures). 92 TBT Agreement, Art. 2.2.

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measures are also subjected to the Agreement’s rules all constrict the ability of officials to extract extra payments from foreign traders.

Agreement on Subsidies and Countervailing Measures, Article 25.

Because the granting of subsidies to a particular industry or firm can afford a government a means of altering the conditions of competition in favor of their own national producers, the SCM requires that all subsidies be notified to the WTO.93 The provisions of Article 25 SCM, moreover, set forth an obligation of minimum information within the notification that can make corrupt uses of subsidies more obvious – and thus less likely to occur. Paragraph 25.3 SCM, for instance, requires that governments set forth the “policy objective and/or purpose of the subsidy”.94 Although clearly, an illicitly-offered subsidy can be given a false declaration of purpose, the requirement will allow for external observation of the payments, and potentially, an investigation into the suitability of such payments with the purpose.

Agreement on Trade-Related Investment Measures, Article 6.

The TRIMs Agreement reinforces the general GATT transparency obligations for measures that Members maintain on foreign direct investment.95 By requiring that any investment measure coming within the scope of the Agreement is published, Article 6.2 of the TRIMs Agreement can play a role in ensuring that traders are aware of the valid rules of investment. As with other provisions on transparency, this will allow for traders to better resist demands for favors in return for trading opportunities. The effect of the TRIMs Agreement, however, is likely going to be limited in its corruption-fighting potential, as the rules to which it is directed – mainly domestic purchasing requirements and import-export balancing rules – are less likely to be the location of significant corruption in the first place than are other regulations surrounding investment rules.

Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994

Paragraphs 1 and 2 of the Understanding on the Interpretation of Article XVII calls for Members to notify all state-run enterprises or state-granted monopolies to the WTO, indicating as well how these companies are run and how they effect international trade.96 Subject to challenges by other Members if not adequately prepared, the provisions of the

93 SCM Art. 25.2. 94 SCM Art. 25.3(iii). 95 TRIMs Art. 6.1. 96 Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and Trade 1994, paras. 1, 2.

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Understanding on the Interpretation of Article XVII addresses a sector of trade that is highly vulnerable to corruption: “governmental and non-governmental enterprises, including marketing boards, which have been granted exclusive or special rights or privileges, … in exercise of which they influence through their purchases or sales the level or direction of imports or exports”97. As economists have indicated that opportunities for corruption are higher where there are “large projects the exact value of which are difficult to monitor”, public commercial enterprises would seem highly susceptible to corrupt practices.98 The additional characteristic of these firms as being public in ownership but private in nature increases the likelihood of their being subject to corrupt practices.99 Indeed, officials of state trading enterprises and other state-granted monopoly firms have great opportunities for exercising discretion in a competition-free environment, and one that is often shielded from scrutiny by complex regulation and bureaucratic structures.100 By requiring at least a record of how the affected business is to operate, and by making this requirement the subject of possible discussion in the WTO, the Understanding’s provisions can thereby reduce the scope for corruption in such enterprises.

General Agreement on Trade in Services, Article III.

GATS Art. III is the services-trade corollary to GATT Art. X. Containing the basic obligation of publishing “all relevant measures of general application” relating to the cross-border trade in services in its paragraph 1, Article III continues to require that Members update their trading partners on changes to their laws that would affect the market access or national treatment of foreign services and service providers.101

97 Id. at para. 1. 98 Axel Dreher, Christos Kotsogiannis, Steve McCorriston, Corruption Around the World: Evidence from a Structural Model, 35 J. Comp. Econ. 443, 450 (2007).

The effect of a state trading enterprise is in this way analogous to the impact of concentrated natural resources in a country. The control over allocating the rights to exploit such resources affords a high degree of discretion to the responsible official, leading to higher incidences of corruption. See A. Ades and R. Di Tella, Rents, Competition and Corruption, 89 American Economic Review 982 (1999). 99 Id. at 451 (relying on Treisman in arguing that corruption is lower “where the normative separation between ‘public’ and ‘private’ is clearer”). See also Daniel Treisman, The Causes of Corruption: A Cross-National Study, 76 J. Public Economics 399 (2000). 100 101 GATS Art. III.3.

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Beyond the notification requirement, GATS also calls for administrative transparency in the regulatory procedures of a Member.102 To ensure the “reasonable, objective and impartial” handling of traders103, Members are to provide for judicial review of administrative decisions104, for prompt attention to requests for authorizations for providing services105, and for feedback on the status of applications106. Combined with the warning that service regulations are not to be “unnecessary barriers to trade”107, the various obligations work to place foreign services and service providers in a position resist demands for bribery at various points in the trading process – from the initial market access attempts to the licensing procedures - reducing as well the commercial necessity of speed payments. Oversight by the Council for Trade in Services and subjection to the dispute settlement process reinforce the preventative potential of such rules with enforcement powers.

Agreement on the Trade-Related Aspects of Intellectual Property Rights

The TRIPs Agreement has a blanket provision on “transparency”, similar to the other multilateral agreements.108 It also calls particularly for notification of regulations that would violate the national treatment or most-favored nation treatment of foreign intellectual property holders.109 Again, the informational symmetry fostered by such information could lead to less success in demands for bribes by officials.

More significant in reducing corruption are the procedural obligations of Members in enforcing their intellectual property laws in favor of foreign nationals, found in Article 41 TRIPs. The provisions of that article require, for example, that Members ensure that the available enforcement procedures are economical in terms of both time and money110, and that judicial review of any final decisions can remedy failings in the legal evaluation 102 GATS Art. VI. 103 GATS Art. VI.1. 104 GATS Art. VI.2. 105 GATS Art. VI.3. 106 GATS Art. VI.3. 107 GATS Art. VI.4. 108 TRIPs Art. 63. The Council for TRIPs is working with the World Intellectual Property Office (WIPO) to establish a common notification registry. See TRIPs Art. 63.2. 109 TRIPs Art. 3.1 and Art. 4(d) (both requiring notification of measures, the former of national treatment exceptions and the latter of measures that are contrary to the MFN obligation of the Member). 110 TRIPs Art. 41.2.

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of an individual’s request111. The preference given to “reasoned” written decisions112, in particular, could have an impact on judicial corruption, as distorted judicial processes will be more open to scrutiny and, ultimately, oversight by the WTO’s own legal review.

Provisions on Harmonization

The provisions on harmonization, found in several of the WTO Agreements, is a tool that may prove even more important on a daily level than transparency in cutting away at corruption in trade, by virtue of its grant of information to the trader. The provisions set out below reduce the opportunities for corruption at the border or on the marketplace by leveling the relative position of the trader and trade officials, as do transparency provisions. By creating a single standard, however, harmonization goes even further than transparency, as the trader no longer needs to invest in understanding differences.

GATT, Article VII

Valuation for Customs Purposes. A pendant to Article II GATT, Article VII sets up a standard by which border officials should judge the market value of a good for purposes of determining the charges to which it is subject. The uniform valuation measure can, again, reduce the margin of corruption facing importers by providing them with a standard against which official decisions can be evaluated, and potentially checked.

GATT, Article VIII

Fees and Formalities connected with Importation and Exportation. Another pendant to Article II GATT, the rules of Article VIII provide that a Member is to limit charges imposed for importation or exportation to the “approximate cost of services rendered”113 as well as to simplify the paperwork requirements imposed on traders114. While the trade policy grounds for such a rule rest with a fear of protectionism, an anti-corruption potential clearly exists. The provision contains the possibility of establishing a basis upon which to base a WTO claim should a Mmeber’s authorities demand extra-legal payments for permission to move a good into or out of a territory. The documentation simplification rule, too, may act as a tool to lessen the opportunities of illicit official behavior by clarifying the legal conditions of market entry. Finally, the provision’s stipulation that no “substantial penalties for minor breaches of customs regulations or

111 TRIPs Art. 41.4. 112 TRIPs Art. 41.3. 113 GATT Art. VIII: 1(a). 114 GATT Art. VIII:1(c). See also GATT Art. VIII:4 (exclusive list of government measures included within the scope of the provision).

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procedural requirements” could lend support to efforts to ensure that law enforcement acts in a manner compatible with its role as upholders of the rule of law.115

Agreement on Rules of Origin.

The Agreement on Rules of Origin (ARO), one of the Uruguay Round Agreements, provides for a harmonization of Members’ regulations on determining from where a product comes for purposes of affording most-favored nation treatment, distributing import/export rights under quantitative restrictions or tariff quotas, calculating dumping and subsidy injury or remedial duties, controlling government procurement, and for the compilation of statistical information.116 To a significant extent, the ARO is a transparency-fostering instrument.117 It requires, for instance, that Members publish such rules118, make prior assessments of the origin of goods if so requested by a concerned individual119, and allow for judicial review of administrative origin determinations120. The Agreement goes further, however, by providing for “consistent, uniform, impartial and reasonable” implementation of the rules of origin by officials responsible.121 Such a clause, being justiciable, offers complainants a grounds for challenging corrupt practices that could arise in individual trade transactions whereby a border official would ask for advantages in exchange for declaring a good to have a particular origin.

Moreover, the ARO aims to harmonize the rules of origin of all WTO Members.122 By its nature, harmonization reduces the informational asymmetry of importer and official at the border, lowering in turn the opportunities for corruption.

115 GATT Art. VIII:3. The provision goes even further, noting that:

“((i))n particular, no penalty in respect of any omission or mistake in customs documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence shall be greater than necessary to serve merely as a warning”.

Id. 116 Agreement on Rules of Origin, Art. 1. Paragraph 1 of Article 1 specifies that the Agreement does not apply to preferential rules of origin. 117 See generally, ARO, Art. 3. 118 Id., Art. 3(e). 119 Id., Art. 3(f). 120 Id., Art. 3(h). 121 Id. Art. 3(d). 122 ARO, Art. 9.1.

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Agreement on Sanitary and Phytosanitary Measures, Article 3.

Article 3 of the SPS Agreement is the provision distinctly directing WTO Members to “base their sanitary and phytosanitary measures on international standards, guidelines or recommendations, where they exist”.123 The provision allows for any such harmonized standard to enjoy a presumptive legitimacy in the WTO system, while condemning any stricter standard to the need to be defended on the basis of “scientific justification” or a rigorous national risk assessment procedure.124 The SPS Agreement, then, clearly reduces the discretion of national authorities to impose arbitrary health standards on traded products. Thus, the corruption-pull is weakened for both the legislative process (where politicians are less flexible to grant requests to pass laws that would benefit particular interests) and in the implementation of the laws (where national executives will be limited by international practice).

Agreement on Technical Barriers to Trade, Article 2.4

Like the SPS Agreement, the TBT Agreement strongly encourages WTO Members to adopt and adhere to internationally-recognized regulations to facilitate the flow of goods among national markets. Viewing all technical regulations as potentially “unnecessary obstacles to trade”, the TBT nevertheless recognizes that some regulations pursue legitimate aims, and so attempts to strike a balance between these effects.

Paragraph 4 of Article 2 TBT sets out that to the extent that relevant international standards exist, WTO Members are to adopt them unless “fundamental” problems would arise from their adoption.125 The desire for harmonization is supported by a granting of a presumption that the internationally-based national standard complies with the WTO, relieving (partially, at least) the Member of the threat of dispute settlement regarding the appropriateness of such regulation.126

123 SPS Agreement, Art. 3.1. 124 SPS Agreement, Art. 3.2-3.3. See SPS Agreement, Art. 5 (setting for the standards and procedures required to fulfil the risk assessment criteria of Art. 3). 125 TBT Agreement, Art. 2.4: “Where technical regulations are required and relevant international standards exist or their completion is imminent, Members shall use them, or the relevant parts of them, as a basis for their technical regulations except when such international standards … would be an ineffective or inappropriate means for the fulfillment of the legitimate objectives pursued, for instance because of fundamental climactic or geographical factors or fundamental technological problems.” 126 TBT Agreement, Art. 2.5 (“it shall be rebuttably presumed not to create an unnecessary obstacle to international trade”).

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The impact of this harmonization-push on corruption is, again, to both reduce the legislative discretion of politicians and to limit corruption in the implementation of such regulations by providing traders with broader experiences with which to challenge demands for illicit bargaining.

Agreement on Rules of Origin.

The Agreement on Rules of Origin is another of the WTO’s main harmonization agreements. The Agreement sets out basic guidelines on how a future harmonized set of rules of origin, applicable to all WTO Members’ MFN trade relations127, should look.128 Thus, the determination of the origin of a product is to depend on harmonized definitions of where the product was “wholly obtained” or where it underwent the last “substantial transformation”.129

As the determination of the origin of a product determines the conditions of competition it will face on its target market, the harmonization of the rules of origin is clearly important to trade relations. Official caprice in making such determinations can lead to opportunities for corruption, so the Agreement’s call to harmonize such rules to reduce the officials’ discretion is a further step to stemming trade-related corruption.

General Agreement on Trade in Services, Article VI.

Paragraph 5(b) of the GATS provision on the rules governing domestic regulation of trade in services sets “international standards of relevant organizations” to be one measure of the compatibility of a Member’s treatment of foreign services and service suppliers. Not absolutely requiring adherence to such standards, the GATS indirectly encourages Member governments to approach a harmonization of regulations by suggesting a higher burden of proof for regulations that do not conform to internationally agreed-upon standards. The ability to invoke such standards may lower a trader’s willingness to yield to requests for bribes from officials.

Agreement on Trade-Related Intellectual Property Rights

The TRIPs Agreement, being essentially an agreement setting out minimum standards of intellectual property protection, harmonizes such rules at the margin. While some WTO

127 Preferential rules of origin (those rules of origin applying to trade with customs union or free trade area partners) are not within the scope of the Agreement. Agreement on Rules of Origin, Art. 1.1. 128 See generally, Agreement on Rules of Origin, Part IV (titled “Harmonization of Rules of Origin”). 129 Agreement on Rules of Origin, Art. 9.1(a). Article 9.2(c) sets out that the drafting committee will determine the definitive content of each of these terms.

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Members may desire greater protection of intellectual property right holders than the TRIPs provides, many Members do not. Thus, the minimum rules become, particularly among governments reluctant to offer such rights, the harmonized standard.

As with the other harmonization attempts discussed above, the harmonization of intellectual property rights can lead to less trade-related corruption by reducing official discretion in the granting of competitive privileges. A producer of intellectual property, because of the rights protected by the TRIPs, can arguably simply refuse to succomb to requests for extra payments from an official who promises to issue rights protection of that property because the producer is entitled to the right of protection at no cost anyway. The benefits harmonization brings to this constellation is that the rights holder need not gather additional information on the intellectual property protection requirements for different markets, and is thus in a better position to assert her rights.

Other Provisions

GATT, Article XX

The GATT’s provision for excepting market access barriers, discrimination, transparency, or any other rule of the agreement for certain policy reasons may seem to open the door to corruption. Indeed, if the basic principles of the WTO foreclose or at least limit the opportunities for illicit official actions, exceptions would seem to re-open these possibilities. The interpretation given to the introductory paragraph of GATT Article XX, however, significantly limits this danger. The so-called “chapeau”, preceding the list of substantive grounds for removing a Member’s obligations under the GATT, notes that the exceptions are available “((s))ubject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail”.130 The Appellate Body of the WTO considers this text to require an investigation into how a particular regulation is applied in fact by officials. Thus, even if a Member’s law is legitimate in its aim as relates to a public interest, if those responsible for implementing the rule act arbitrarily or unreasonably (such as would be the case in corruption), the exception of GATT Article XX will not be available to excuse such conduct.

At the same time, the exception found in Article XX(d) offers an assurance that Member laws that penalize corruption can be implemented without contravening the GATT obligations of non-discrimination or market access. The exception of paragraph (d) provides that Members may avoid any GATT obligation if such avoidance is “necessary to secure compliance with laws or regulations which are not inconsistent with” the trade agreement. Although particularly aimed at anti-trust laws and intellectual property

130 GATT Art. XX.

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protections, the provision’s text is unlimited by the subject matter of the laws at issue. That anti-corruption laws could fall under its ambit can therefore be assumed. The trade regime is, therefore, neutral toward Member efforts to combat corruption, not preventing them, even if not actively pursuing such a goal.

GATT, Article XVII

The rules requiring non-discrimination from state-trading enterprises’ purchases and sales broaden the scope of the WTO’s anti-corruption potential by subjecting such enterprises, or any commercial firm enjoying governmental “privileges” to the same principles as Members’ governments are. Explicitly calling for state trading enterprises to utilize “solely … commercial considerations” in their business decisions, Article XVII lends legal grounds for complaining of corrupt practices in the acquisition of contracts with their nationals to WTO Members.131

VI. Assessment: A Limited Impact of WTO Rules on Corruption The above-mentioned measures found in the positive law of the WTO are modest instruments in reducing corruption opportunities that at the same time liberalize world trade. Each may contribute to reducing the capacity of trade officials to illicitly profit from producers by providing reliable information about the existing level of barriers. Armed with such knowledge, a potential importer will – theoretically – be able to resist demands for extra payments in exchange for gaining entry for her products.132 The WTO rules on liberalization can, therefore, contribute to the reduction of opportunities for corruption if wielded purposefully to that aim.

There are two main weaknesses of relying on the WTO trade instruments for corruption reduction. First, existing WTO measures address only a small part of the scope of “corruption”. Second, the trade instruments’ potential to lower corruption opportunities necessarily rely on traders’ active resistence toward corruption for any actual effects.

131 GATT Art. XVII:1(b). 132 According to the results of empirical research on firms’ reactions to suspected corruption among competitors, one might doubt that the theoretical benefits of transparency will be fully realized. Soreide remarks, for instance, “Given that firms seldom raise their voice to report corrupt suspicions, they are left with two options when operating in challenging business environments: they exit from the market or adjust to local business practices”. Tina Soreide, Corruption in International Business Transactions: the Perspective of Norwegian Firms in: Susan Rose-Ackermann, ed., International Handbook on the Economics of Corruption 381-417, 401 (Cheltenham, UK/Northampton, MA: Edward Elgar, 2006).

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In terms of the first weakness, the WTO measures set out above indirectly address only a narrow segment of behavior that can be defined as “corruption”. Indeed, one could argue that (particularly given the stalemate on negotiations over the Trasparency in Government Procurement and the possibility that the Members will fail to adopt the GPA Revisions) the existing WTO rules can only address the most easily-recognized part of even the more narrowly-defined “trade-related corruption” – the “petty” corruption of bribery at the border. While bribery of border guards or inspection officials can, indeed discourage trade, and programs to eliminate corruption among border officials is a necessary step toward reducing the negative effects of corruption on an economy, from a trade viewpoint, petty corruption is more likely seen as an irritating tax than as a true hurdle to profits to most producers. The willingness of traders to continue to engage in business in countries viewed as highly corrupt testifies to the validity of this perspective.

Moreover, it is such petty corruption that – while not harmless – may be less damaging to the society in which the corrupt officials reside. The payments demanded by an official who otherwise cannot feed, clothe, or provide medical care for a family, for example, may be characterized as a functional equivalent of a redistributive tax, standing in the place of a state’s official protection of its citizens’ human rights.

The case of grand corruption is different. Corruption of decision-makers in the public purchasing sector, for instance, can have much more dire effects on citizens by subjecting populations to products or services from not just economically less competitive companies, but to products which are unsafe and service suppliers which are unqualified. The examples are varied: from the overinvestment in building roads at the cost of maintenance of existing roads because corrupt gains are higher when infrastructure is newly built to the collapse of bridges resulting from the selection of unqualified suppliers in a public tender to the granting of mining rights to a company with which an official has a financial interest. Corruption at the highest levels can leave a society stripped of financial and natural resources, subject to unaccountable political leaders, and devoid of the hope of change.

Even putting aside its damaging effects on development and human rights, corruption’s negative effects on trade liberalization efforts go much further than the existing provisions of the WTO can address. Hard to detect, corruption of higher trade officials might lead to government policies that harm the wider economy even while ensuring a particular industry (or a single firm or even an individual) a privileged position: protection from commercial competition in return for cash payments is an obvious example, but similar (if not worse) are actions such as exchanging jobs or political

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support (or even an individual’s life) for a judgement favorable to one side of a legal dispute.133

VII. Should the WTO be Involved in Combatting Corruption? The fact that the WTO is in the business of liberalizing trade – lowering market access barriers and fostering expectations of equal conditions of competition among traders speaks neither for nor against the Organization’s taking a firmer stand on the corruption issue. The answer to the question of whether the WTO should be involved in the corruption-fighting efforts of the other international financial organizations logically rests on the question of how corruption itself effects the achievement of the Organization’s goal. The goal itself must be defined through the political process. Assuming the goal is trade liberalization, the answer to whether the WTO should directly attempt to reduce corruption depends on corruption’s effects on liberalization. If one can persuasively claim that corruption has no effect (or even positive effects) on trade liberalization efforts, the current stand-aside attitude of the Organization is justified. If, on the other hand, the research indicates a significant causality between corruption and non-liberalization, the response of the Members should be quite different. The answer to the role of the WTO in corruption-combatting thus depends on how corruption impacts on liberalization.

What do we know about Corruption’s Effects on Trade Liberalization?

The research on corruption’s effects on trade liberalization is, like all research on corruption, notoriously difficult and questionable, as the measures of corruption are themselves inaccurate. Perhaps more importantly, however, there is a paucity of research on this particular question. The two recent studies known to this author are a 2002 paper by Lee and Azfar and a 2007 paper by Bandyopadhyay and Roy.134 While Lee and

133 Reports by Transparency International on perceived judicial corruption highlight the extent to which a corrupt judiciary can cripple a society’s pursuit of general prosperity and basic justice. --- 134 Young Lee and Omar Azfar, Does Corruption Delay Trade Reform? 21 June 2002 (text available at: http://www.kdischool.ac.kr/faculty/2002seminar_data/21%20Does%20Corruption%20Delay%20Trade%20Reform%20final.pdf); Subhayu Bandyopadhyay and Suryadipta Roy, Corruption and Trade Protection: Evidence from Panel Data, Working Paper 2007-022A (May 2007) (text available at http://research.stlouisfed.org/wp/2007/2007-022.pdf).

On page 20, the Lee and Azfar state in conclusion, “The results we present here are, as far as we know, the first to show directly that trade regulations are endogenous to corruption and that more corrupt countries delay trade reform”.

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Azfar’s results strongly indicate that corruption negatively influences trade liberalization, it is a limited study. It does not, moreover, provide any explanation for the many liberalizations of trade that have occurred in regimes perceived to be highly corrupt. Bandyopadhyay and Roy’s paper confirm Lee and Azfar’s indicated results through empirical calculations, finding that corruption can lead to more protectionism because low-quality institutions are more open to pressure from national groups to restrict foreign competition. It, however, limits its view of trade openness to tariffs and international taxes, and seems to only look at the corruption from domestic producers. I believe, although I cannot empirically prove, that the relationship between corruption and liberalization is more complex than either of the models can reflect. The following analysis is, therefore, necessarily rudimentary, and will benefit from input in the future.

In addressing the question of whether corruption could influence a country’s trade liberalization activity, it is easy to make a hypothesis that the answer is “yes”. As in the reverse relationship discussed above, it is intuitive that high trade barriers create opportunities for requesting illicit advantages in exchange for market access or equal conditions of competition. Under such an assumption, the effect of public corruption would be to lower a regime’s willingness to liberalize its trade in the absence of overwhelming alternatives in order to protect these extra sources of income. Corrupt officials and politicians “may well … put in place and [maintain a corrupt policy framework] precisely because of its corruption potential”.135 The empirical investigations of the problem of “regime-capture” give credence to these assumptions.136 Determining

The Bandyopadhyay and Roy paper contains a literature review and a reference to older studies that look at corruption and trade, but mention that the Lee and Azfar paper “to our knowledge, is the only paper that looks at the effect of corruption on trade policy” rather than the effect of trade on corruption or general effects of corruption. Bandyopadhyay and Roy, 2-3. See id. at 1 (mentioning Mancur Olson, The Logic of Collective Action (Cambridge: Harvard Univ. Press, 1965) and Gene M. Grossman and Elhanan Helpman, Protection for Sale, 84:4 Am. Econ. Rev. 833 (1994)). 135 Toke, Economic Analysis of Corruption at F635. 136 I want to acknowledge and thank Nils Herger of the University of Bern/World Trade Institute for his helpful advice and forwarded literature suggestions on the role of regime capture/rent-seeking in the area of financial liberalization which led me to the more general economic literature on the influence of political elites on regulation. For an economic account of the role of capture in developing usury laws in the United States, see Efraim Benmelech and Tobias J. Moskovitz, The Political Economy of Financial Regulation: Evidence from U.S. State Usury Laws in the 19th Century, Harvard Economics Department Working Paper at 4 (August 2007) (“The tension between private and public interests provides an explanation and highlights the endogenous relation between financial development and growth”). Benmelech and Moskovitz describe the

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whether this intuition is correct for trade liberalization, however, requires more than pure conjecture, as several considerations warrant account.

First, the openness-equals-less-corruption theory relies on a connection between the law-makers responsible for trade policy (whether the official legislature or an administrative office, as the case may be) and those benefiting from corruption. While this is often a close connection – indeed, many corruption regimes suffer from corruption at every level – it is not an unavoidable one. Remember, there are different types and forms of corruption. This can have an influence on the probability of shaping trade policies according to private interests. If, for instance, the corruption is mainly in the form of border officials accepting bribes from foreign traders in exchange for a tariff re-classification, and if these officials are not sanctioned by their supervisors for such bribe-taking, it is unlikely that trade policy made at higher levels of government, often at a location geographically removed from the border where the guards work, will be much affected by the consideration of maintaining the source of such illegal moneys. Of course, if the higher official takes a portion of the bribes, the interests in maintaining such barriers will assume a higher importance. If, alternatively, the main form of corruption is embezzlement or nepotism, then a corrupt government official that can extract value from the increased number of commercial transactions resulting from a liberalization might be just as willing to liberalize trade as an honest official would.137

Next, the analysis needs to consider which aspects of trade liberalization are affected by corruption. Here, one could imagine that aspects such as tariff reduction might be viewed differently than liberalization in the form of the acceptance of transparency requirements for government procurement tender processes. While the former would be perhaps only

findings in numerous works of other economists that have looked at the formation of legislation/regulation by affected elites. See, e.g., Stanley L. Engerman and Kenneth L. Sokoloff, The Evolution of Suffrage Institutions in the New World, 4 J. Econ. History 891 (2005); Edward L. Glaeser and Claudia Goldin, Corruption and Reform: An Introduction, in: Glaeser and Goldin, eds., Corruption and Reform: Lessons from America’s Economic History 3-22 (NBER, 2006); Randall S. Kroszner and Philip E. Strahan, What Drives Deregulation? Economics and Politics of the Relaxation of Bank Branching Restrictions 114 Quarterly J. Economics 1437 (1999); John J. Wallis, Constitutions, Corporations, and Corruption: American States and Constitutional Change, 1842-1852 65:1 J. Econ. History 211 (2005). 137 As Susan Rose-Ackermann recognizes: “Powerful groups that lose one source of patronage will search for another vulnerable sector”. Susan Rose-Ackermann, Introduction and Overview in: ibid., ed., International Handbook on the Economics of Corruption xiv-xxxviii, xxxvii (Cheltenham, UK/Northampton, MA: Edward Elgar, 2006).

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moderately opposed, if at all (depending on the original tariff level and amount of the reduction), the latter may be strongly rejected, given that the potential gains from corruption are so large and the corresponding risk of detection (let alone of punishment) so small when intransparency can be maintained.

Additionally, note must be made as to the types of corruption that can lead to stalled trade negotiations. Bribery, misappropriation of public funds, and links with organized crime are the most obvious forms to have such a result, while nepotism, judicial favoritism, or manipulation of elections are forms of corruption that are unlikely to have much of an influence on trade regulations at all.138 Moreover, if the corruption reaches the level of organized criminal activities, the government may well authorize trade liberalizations in order to increase the profits of particular individuals or groups who themselves control importing or distribution channels.

Further, the assumption that corruption reduces the commitment to trade liberalization efforts depends on viewing corruption as mainly a demand-driven problem. That is, seeing the corruption itself as resting with individuals in the home country requesting/demanding payments in exchange for benefits of market access or advantageous treatment. If the supply-side corruption perspective is taken, there would be no clear basis for thinking that liberalization would lower the foreign actors’ propensity to offer bribes. Indeed, there might be the opposite conclusion, assuming that more liberalization translates into more commercial activity and more interactions between foreign traders and domestic officials. A corrupt official, therefore, may actually desire liberalization, and attempt to influence trade policy accordingly.

Finally, experiences with economic liberalizations have illustrated the role that corruption can play in the process of liberalization. When state-owned firms are privatized, for example, numerous new opportunities for corruption emerge. An under-valuation of the sales price and/or sales to related buyers in return for a portion of the profit can be extremely enriching to officials who can make the deal.139

138 See a list of “commonly recognised forms of corruption” set forth in Jeremy Pope, Confronting Corruption: The Elements of a National Integrity System xviii (Transparency International: Berlin/London, 2000) (relying on Gerald E. Caiden, Toward a General Theory of Official Corruption, 10:1 Asian J. Pub. Admin. (1988)); Glenn T. Ware and Gregory P. Noone, The Anatomy of Transnational Corruption, 14:2 International Affairs Rev. 29 (2005) (listing bribery, kickback brokers, front companies, bid rigging, official-owned enterprises, and theft from government accounts/abuse of public assets as the six basic forms of corruption in transnational exchanges). 139 U4, Causes & Consequences of Corruption, available at http://www.u4.no/helpdesk/faq/faqs1.cfm#4 (last visited 22 May 2008).

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Whether rises in corruption levels such as were witnessed in the transition economies in the early 1990s are temporary is possible, but cannot be presumed, as consequent reductions in corruption rely on a state institutional structure capable of combating post-transition corruption. Given the aim of “small government”, “there is a risk that economic liberalisation may reduce further the efficiency and effectiveness of the state”.140

What Could the WTO Do Now?

The answer, therefore, to the question of whether the WTO’s approach to corruption is adequate remains unclear. Despite the high probability that corruption does have an effect on how trade liberalization is shaped, there is a lack of evidence of whether the liberalization process itself is hindered by corruption to give definite support to an anti-corruption platform in the WTO.

Current research on the relationship between corruption and trade liberalization is not yet advanced enough to give clear indications of the magnitude of the impacts of the former on the latter. While one can hypothesize on the motivations of corrupt law makers and their approach to trade liberalization, observable trade policies of regimes perceived to be corrupt do not clearly reveal anti-liberal tendencies. The many facets of corruption, its ability to adapt to change – indeed, to shape the changes themselves, make generalizations about a causal relationship between corruption and non-liberalization valueless.

A rule-based WTO, however, must make generalizable policies. In view of this, my tentative response to the “what should the WTO do about corruption” question would be this: both the Ministerial Conference and the WTO Secretariat should make unequivocal statements condemning corruption. Coming from the highest trade official of each Member and from the administrative head of the organization, such a statement would lay out the position that corruption is at odds with the goals of the trading system.

The Membership should then concretize their opposition to corruption as it affects trade by means of a declaration. Such a soft-law instrument sends an important signal to governments and officials that corruption in trade relations is damaging to the law-based system to which the WTO aims, and yet does not require the WTO to exceed its competences by developing substantive measures directed toward the reduction of corruption in particular transactions. The contents of a declaration could include an acknowledgement that a rule-oriented approach to a trading system that protects expected conditions of competition relies on the honest administration of law in each Member’s governmental system, the recognition of the damaging effects of corruption on growth (without needing to mention human rights concerns), a call for importing and exporting countries to address both demands for as well as offers of illicit benefits (so as to spread 140 ((relocate source of quotation))

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the task equally between industrialized and developing Members), an incorporation of a program to work together with other institutions in developing corruption-detection and –reduction methods (thus underlining the governments’ commitment to becoming active in the field while consciously keeping the locus of the bulk of anti-corruption activities external to the WTO), and an intent to pursue research on the effects of corruption on trade liberalization (thereby establishing an agenda to allow for further rule-making if necessary).

VIII. Conclusion Corruption is widely believed to be damaging to societies. Condemning corruption, therefore, should not pose political difficulties. The WTO’s failure to do so, therefore, is lamentable. Yet, the likelihood that corruption negatively influences the trade liberalization agenda of the WTO is not sufficient to warrant a full-fledged attempt by the WTO to develop rules to combat corruption. Norms that already exist in the various WTO legal instruments, particularly procedural requirements that aim at transparency, as well as substantive harmonization and market access provisions afford traders a tool to wield against demands for bribes that distort competition. Further substantive rules to reduce corruption would require a clearer theoretical basis before they could be brought into the WTO treaty system, and that basis does not yet exist outside of government procurement. Until the specificities of the various forms of corruption can be examined for their effects on the multiple aspects of trade liberalization, a general statement of the WTO and its Members calling for a common effort to avoid corruption in trade relations can suffice to signal the organizational interest in an honest pursuit of the rule of law.

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Annex

IX. Proposed Draft Declaration of the World Trade Organization’s Condemnation of Corruption in Trade Policy and Trade Rules Administration

1. Ministers recall that corruption of trade administration can deprive governments of legitimate gains from trade, whether through lost tariff revenues or foregone trade relations. It is in the interest of each Member’s government, therefore, to eliminate corruption from its own administration.

2. Ministers recognize the danger that corruption may pose to the liberalization of trade. When corruption distorts policymakers’ decisionmaking, liberalization efforts may be hampered or prevented in order to protect illicit sources of profits. This is contrary to the underlying goal of the world trading system.

3. Ministers further realize that corruption in the creation and administration of trade policy can threaten the principles of market access and non-discrimination that the multilateral trading system aims to further. It can thereby impair the expectation of equal conditions of competition available to foreign traders.

4. We recognize the benefits of transparency in trade policymaking and administration for reducing trade-related corruption. When trade rules are published and known to traders, the opportunities for resisting corruption are minimized. At the same time, traders are responsible for using the knowledge available to them to avoid complicity in illicit transactions.

5. Independent review of administrative decisions is important to ensuring the enforcement of honest trade rules. Written decisions, complaint procedures with independent review of official rulings, and effective remedies for disappointed traders form a necessary part of national efforts to combat trade-related corruption. Members should ensure that their administrative procedures include such procedural aspects of the rule of law.

6. Ministers acknowledge and appreciate the efforts of other governmental and non-governmental institutions in developing methods to reduce corruption, and pledge to assist such efforts as relate to the multilateral trading system. We pledge to uphold through effective enforcement our obligations to criminalize corrupt activities of nationals acting outside of our national jurisdictions as set forth in the United Nations Convention Against Corruption.

7. Recognizing that there is widespread corruption in government procurement and its direct impacts on Members’ sustainable economic development, we particularly condemn corruption in this sector. We take notice of the OECD/DAC-World Bank initiative on addressing corruption in public

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procurement, and will strive to implement the results into our national procurement activities. We will also consider how the guidelines can be integrated into the Agreement on Government Procurement.

8. Ministers affirm the need for research on the question of how corruption affects trade liberalization. Studies to determine the effects shall be undertaken by the Secretariat, in cooperation with recognized international experts.

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